By 
Royal Mail PLC‘s (LON:RMG) big news is that revenue from parcels overtook letters for the first time, but the real story perhaps is that the coronavirus pandemic could lead to a breakthrough with trade unions.
There were hints that today’s strong half-year results, where lockdowns in the UK and around the world have led to a surge in online shopping and parcel deliveries, could in fact be key to enabling a successful conclusion of the talks in a matter of weeks or even days.
While there had been optimism on both sides in the summer, progress has stalled (as some expected).
“Talks with our unions are at an important stage,” interim executive chair Keith Williams said in the statement alongside the results.
“We have been encouraged by our talks with CWU, which have intensified over the past weeks.
“With the improved revenue performance, we have focused on how we can deliver efficiency and productivity in a growth environment together, which will enable the business to see the benefits of operational leverage.”
To the CWU, which represents the bulk of the group’s frontline staff, this sounded positive too.
Senior representatives from the union telling Royal Mail put out a statement to members that one of their main points of focus in the talks is to ensure staff “receive a backdates consolidated pay award before Christmas.
“On the basis of the company’s half-year results, we now anticipate an improved offer on pay.”
They promised members a full update next week.
Delivering flexibility?
A new agreement with unions is seen as key by the company and investors as allowing Royal Mail to step up automation in face of nimbler competition.
Moreover, although still one of its biggest customers, Amazon is doing an increasing amount of deliveries itself and, as some analysts said, Jeff Bezos’ online colossus has pockets so unfeasibly deep that it can fund the kind of automated delivery solutions Royal Mail could only dream of.
Powerful parcels performance pushes the envelope
Although the company was at pains to highlight an adjusted operating loss of GBP129mln, after restructuring charges of GBP147mln, an adjusted operating profit of GBP37mln was the big number in the City.
This was well ahead of the GBP3mln average analyst estimate.
Parcels revenue jumped to 60% of total turnover compared with less than 50% the last time, enabling group-wide revenue to increase almost 10% to GBP5.7bn, with Amsterdam-based GLS a big reason behind the outperformance of expectations.
The board now expecting the recent strength in parcel volumes to be maintained for the rest of the full year, pointing to potentially positive adjusted operating profits if revenues come in at the higher end of new expectations.
UBS calculated the new guidance implies an adjusted operating profit of around GBP309mln, compared to the previous analyst consensus of GBP43mln.
Although statutory profits were down 90% due to the faster deterioration in letters trends and additional costs from coronavirus, Liberum analyst Gerald Khoo saw the results as a potentially important inflexion for management, though not enough to lift his ‘sell’ recommendation.
“We see union agreement and wholehearted support from frontline workers as essential to Royal Mail delivering necessary restricting in the UK, to adapt to the structural changes in demand that have been accelerated by the pandemic,” Khoo said.
“The improved short-term outlook, which is far better than we had thought possible, gives Royal Mail greater financial headroom and time execute the required restructuring in the UK.
“However, it remains to be seen whether this makes it harder for management to obtain concessions from the CWU, or convince employees of the need for still-difficult changes to working practices..”
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